The superannuation extremists in Treasury have been rolled and for once the government has made a reform that make sense.
And I guess I have to say that because the government reforms are almost exactly what I have been suggesting in Business Spectator and in Eureka Report.
You will remember that Treasury published a mathematically inaccurate statement on the cost of superannuation benefits and did benefit calculations on the basis of a 7 per cent return which was too high (How Treasury mucked up its super sums, February 8).
In addition it has also been spruiking highly misleading material and inexperienced journalists followed them and suggested that there would be a limit of $800,000 to $1 million put on superannuation before the tax axe fell.
But, as we saw in the mining tax, Treasury was simply wrong on superannuation and the government has come to understand this.
I have been urging the government to make the tax free threshold $2 million for funds in pension mode, which on the basis of a 5 per cent return would yield $100,000 after tax. After that, income of superannuatuon funds in pension mode should be taxed at 15 per cent. It is not as good as tax free superannuation with no limit but there is equity.
What the government has done is to use those sums as the basis of policy – the first $100,000 of income in a superannuation fund is tax free and after that income is taxed at 15 per cent. The $100,000 is indexed to inflation. They used a return of 5 per cent to make the calculation.
The superannuation industry will be unhappy but most people can live with that change because it makes it highly unlikely that the extremists in Treasury will have another attempt to wreck superannuation for a long time.